Pension liability clouds county of Marin's bright fiscal portrait

As Marin County supervisors exchanged high-fives the other day to celebrate sunny economic news including a balanced budget and a top credit rating, few lingered to reflect on the pension liability clouding the bright portrait.

With the unfunded liability of benefits promised county retirees running anywhere from about $632 million to $2.3 billion, the county board was quick to affirm earlier pledges to pump in $46 million from reserves to pay down the debt.

The $46 million move, on top of $12.5 million already set aside to pay down retiree health liability, was unparalleled in the region. In all, the county allocated $58.5 million more to retiree liabilities than it was required to, said Dan Eilerman, deputy county administrator.

But the one-time allocation of reserve funds did not commit the board to follow suit with continuing annual pay-down allocations. "That's a policy decision for the board," noted County Administrator Matthew Hymel, indicating officials must continually balance pension debt with other funding needs. A $94 million reserve fund includes nearly $28 million tucked away in "economic uncertainty" accounts.

While stopping short of moving to an annual policy of allocating reserves, Supervisor Judy Arnold and several colleagues signaled a willingness to reduce liability even more when next fiscal year's budget is adopted in June. Officials also have pledged return to pension coffers any savings due to state pension reform law.

The county, banking on a robust stock market to boost pension investments, believes it is on track through regular annual pension payments to eliminate its $339 million pension liability in 17 years, and its $293 million retiree health liability in 30 years.

If the county's pension vision is skewed, the overall liability facing taxpayers could more than triple, according to a more conservative investment scenario sketched by Stanford University academics. They concluded in 2010 that Marin taxpayers were on the hook for more than $2 billion in unfunded pension and retiree health costs.

The Stanford study was headed by Joe Nation, a former Marin assemblyman who used a "risk free" 4 percent treasury bond investment earning calculation.

County officials and the pension trustees who set investment assumption rates are betting on Wall Street. Although stock advisers universally advise that past performance does not guarantee future results, the county cites past results for its view that stock market investment earnings will top 7.5 percent a year. That's about twice the pace of the past decade or so, but in line with performance over the last century.

Pension and retiree health at Civic Center cost taxpayers $121 million this fiscal year, including the $58.5 million to pay down liabilities. Next fiscal year, a $78 million retiree tab includes $46 million for pension costs; $8 million for pension bond interest; and $24 million for retiree health, half of it to pay down unfunded health liability.

Several county supervisors indicated that depending on the fiscal landscape, they may do even more to pay down pension debt when a final budget is reviewed in June.

"What are we doing in terms of paying down pension and retiree health?" wondered Supervisor Susan Adams at a budget policy session. "It is a possibility we can make another hit into that fund," she said.

Board president Judy Arnold later suggested the board earmark another $1.5 million or about half of an "unassigned" carryover balance to the pension fund, and an equal amount to a "safety net" fund. "I am also open to adding more funding that might arise over the next fiscal year to paying down the pension debt," Arnold said.

Supervisor Katie Rice said she is "willing to consider additional paydowns ... in the context of broader picture needs," a view shared by Supervisor Kate Sears. "No one issue can drive all budget decisions," Sears cautioned.

Supervisor Steve Kinsey, noting the county also has agreed to shift savings from state pension reform to pay down county liability, said he did not envision doing more in the next budget for pension liability "unless new one-time revenues are identified."